Statement of Practice (SP) 10/84 describes a practice under which all bank accounts in a particular foreign currency may be treated as a single account in certain circumstances. Under the relevant statute, a withdrawal from a foreign currency bank account constitutes a disposal of an asset and a chargeable gain or loss should generally be computed whenever there is such a withdrawal. The effect of SP 10/84 is to enable individuals who use it to disregard direct transfers between such accounts in a particular currency for Capital Gains Tax purposes.
This practice is not available to individuals who are not domiciled in the UK in respect of their foreign currency bank accounts located outside the UK.
This note sets out details of an extension to this practice to allow individuals who are not domiciled in the UK to treat their offshore bank accounts in a particular foreign currency as a single account.
This does not affect the practice already available under SP10/84 to individuals domiciled in the UK. The new practice will be available to non-UK domiciled individuals in respect of transfers on or after 6 April 2008.
Legislation may be introduced in the future which in broad terms would put the practices described in SP10/84 and this note on a statutory footing. However, if these practices are not superseded by legislation, it may become necessary for HM Revenue & Customs (HMRC) to review their operation.
The text of SP10/84 is reproduced as an appendix to this note.
A credit balance in a Foreign Currency Bank Account (FCBA) is a debt owing to the account holder (section 21(1) of the Taxation of Chargeable Gains Act 1992 (TCGA)), and as such is an asset within the scope of CGT (section 252(1) TCGA).
A withdrawal of funds from an FCBA therefore constitutes a disposal (or part disposal) of the asset on which a capital gain or loss arises. ‘Withdrawal’ includes the transfer of funds to another account, even if that other account is denominated in the same foreign currency. The TCGA stipulates that chargeable gains must be computed on the disposal of assets and tax charged on those gains.
There is an exception for sums in an FCBA which represent currency acquired for personal expenditure outside the UK of the account holder or his family or dependents (section 252(2) TCGA). The exceptional treatment of such sums is not affected either by SP10/84 or by this note.
HMRC has long recognised the implications of these rules for individuals who hold FCBAs. The effect of SP10/84 is to relieve them of the need to carry out numerous computations, but it did not apply to the offshore FCBAs of individuals who were not domiciled in the UK. This was because of the difference in treatment, for non-domiciled individuals, between accounts outside the UK, on which gains were liable to Capital Gains Tax only when they were remitted to the UK, and accounts within the UK, on which gains were liable to Capital Gains Tax when they arose.
After receiving representations from stakeholders on the effects, in this context, of the revised remittance basis of taxation introduced by Finance Act 2008, HMRC has reached the view that it is consistent with the practice described in SP10/84 to allow individuals not domiciled in the UK to treat all their FCBAs located outside the UK in a particular currency as a single account.
An individual who is not domiciled in the UK may treat all bank accounts which:
as one account and disregard direct transfers among such accounts for capital gains purposes.
Once adopted this practice must be applied to all future direct transfers among such bank accounts in that taxpayer’s name containing that particular currency.
A non-UK domiciled individual with FCBAs in a particular currency both in the UK and overseas may treat all the UK accounts as one ‘aggregated’ account and all the overseas accounts as a second, distinct, ‘aggregated’ account. A direct transfer from an overseas account to a UK account, or vice versa, even if in the same currency, will not be disregarded for capital gains purposes and the individual will need to consider whether a computation of his or her capital gain or loss will be necessary in order to make a correct tax return.
In order to compute gains and losses on transfers from FCBAs it is necessary to determine (amongst other things) the allowable cost of the asset disposed of in pounds sterling; this will depend on the allowable cost of the debt represented by the balance in the account immediately before the transfer. HMRC has publicised guidance and permitted practices to help determine both of these figures. Read more detailed guidance on Residence and Domicile: Guidance on the new tax rules.
Where the amount of net gains from transfers from overseas non-sterling bank accounts which an individual remits to the UK is less than £500 in any tax year, it will not be necessary to report such gains to HMRC. Read more about the de-minimis limit for foreign exchange gains on FCBAs.
Peter is domiciled and resident in the UK and has a euro-denominated bank account in London and two euro-denominated bank accounts in Paris and Munich. Under SP10/84 Peter has been, and will remain, able to treat all three accounts as a single account and disregard direct transfers between them for Capital Gains Tax purposes. Peter is unaffected by the changes described in this note.
Peter is domiciled in Germany but is resident in the UK. He has two euro accounts in London and two in Berlin. Until now Peter has been able to treat the two UK-based accounts as a single account, but the German accounts had to be treated as separate assets in their own right. Under the extended practice described in this note, Peter will continue to treat his two UK-based accounts as one account but, from 6 April 2008, may treat his two non-UK accounts as a different single account so that direct transfers between the German euro accounts will be disregarded. However, transfers from either German account to one of the London accounts, or to any other account not denominated in euros, will be a disposal for Capital Gains Tax purposes.
Mary is domiciled in Poland but is resident in the UK and has the following bank accounts:
Until now Mary has been able to treat the two UK-based euro accounts as a single account. Under the extended practice described in this note, she is able to treat each of the following groups of accounts a single account and to disregard direct transfers between accounts within each group for Capital Gains Tax purposes:
Transfers between accounts in different groups (for instance between the London and Paris euro accounts, or between the Paris euro account and the Zurich dollar account) will be disposals for Capital Gains Tax purposes.
SP 10/84 FOREIGN BANK ACCOUNTS
1. At present, under Section 252, TCGA 1992 (Section 135(1) CGTA 1979), direct transfers from one foreign bank account to another are treated as a disposal and an acquisition of assets for Capital Gains Tax purposes.
2. Except in relation to an account to which Section 275(1) TCGA 1992 (Section 69 FA 1984) applies (accounts held by non-domiciled individuals), a taxpayer may treat all bank accounts in his name containing a particular foreign currency as one account and disregard direct transfers among such accounts for Capital Gains Tax purposes. This practice once adopted must be applied to all future direct transfers among bank accounts in that taxpayer’s name containing that particular foreign currency until such time as all debt represented in the bank accounts has been repaid to the taxpayer.
3. This practice may be applied to all cases where the Capital Gains Tax computations have not been settled.
